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What Is Commercial Banking?

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When businesses need loans, a place to deposit their money, or someone to vouch for their credit, they turn to commercial banks. So, what is commercial banking? Commercial banking covers financial products and services that businesses need, including deposit accounts, loans, lines of credit, payment processing, and more.

 In this guide, we’ll cover:

What Commercial Banks Do

Commercial banks provide services for businesses, government agencies, and institutions like colleges and universitiesm to help them grow and profit. They make money mainly by loaning money to businesses and earning back interest and fees from these loans. 

Commercial banks loan money to businesses to cover supplies, real estate, hiring, or any other cost the business might incur. Yet there’s much more to this field than lending — they perform various services to help fund businesses and provide financial support.

Products and Services

  • Checking or savings accounts: Like you might have your own checking or savings account, commercial banks set up deposit accounts for businesses. Businesses will use their checking account to send money to their employees or for other business transactions. Savings accounts are used for putting away money, and businesses can earn interest on these funds.
  • Lines of credit: A line of credit is a way for banks to give money to businesses. This is a set amount of money a business can tap multiple times until it reaches the monetary limit. Then, a business can repay the money and borrow it again as needed. Compared to loans, businesses use a line of credit for smaller purchases.
  • Credit letters: When a business is trying to buy goods and services from another company or seller, the bank can supply a letter of credit. A letter of credit vouches for the business and ensures they will pay what they owe.
  • Payment processing: When customers pay the business, they may do so with a check (either paper or electronic) or a credit card. Commercial banks help process these payments and safeguard against fraudulent transactions.
  • Foreign exchange transactions: These banks can help exchange money between the business’ currency and a foreign one.
  • Lockbox services: To help speed up customer payments, they’ll providing a business with a lockbox — a place where customers can directly send their money. The bank then processes these payments and adds the money to the business’ account.
  • Professional services: Certain services a bank will do for a business in return for commission, like collecting checks and bills, paying interest or insurance premiums, and buying and selling securities.

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The Difference Between Commercial and Other Types of Banking

The main difference between commercial banking and other types of banking is to whom the banks provide financial services. For example, investment banks serve investors by raising capital, assisting in mergers and acquisitions, and providing investment advice.

>>MORE: What Is Investment Banking?

Retail banking, also known as consumer banking, serves the general public. These banks provide similar services as commercial banks — like deposit accounts and loans — but they do so for everyday individuals, not businesses.

>>MORE: Standard Bank’s Retail Banking Virtual Experience Program

Commercial Banking Careers

A commercial banker may work on any or all of the above products and services or may specialize in a specific area. Other job titles include:

  • Teller: an entry-level position that focuses on business client payments, deposit accounts, cashing checks, and withdrawals
  • Loan officer: assesses business loan applications and organizes loan contracts
  • Credit analyst: evaluates a business’s financial standing when the business applies for a loan or a line of credit
  • Business development manager: identifies, develops, and brings new business to the bank
  • Relationship manager: helps acquire, retain, and expand the bank’s business clients
  • Compliance manager: makes sure the bank’s policies comply with federal guidelines
  • Branch manager: a senior position that oversees the bank’s operations, revenue, and goals

>>MORE: Explore what it’s like to work as a commercial banker with JPMorgan Chase’s Commercial Banking Virtual Experience Program.

You’ll either need finance experience or a degree in a related field to launch your career. To succeed, you’ll need:

  • Education: While not all positions require a degree, many employers may want a candidate with a bachelor’s degree in a related field like accounting or finance. To advance in the field, you may also need a master’s degree.
  • Certification: Besides a master’s, you may also need certifications, like the commercial banking & credit analyst (CBCA) or certified public accountant (CPA), to advance in commercial banking.
  • Skills: Commercial bankers need hard skills in math to perform financial analysis and soft skills like interpersonal and communication skills when working directly with clients.

“Be a good professional communicator (in person, phone, email, text, etc), and have a sense of urgency for solving your customers’ problems,” Kyle Shirley, former vice president of business banking strategy at Bank of the West and current business owner of Sol Vista Roofing, says. “There are internal bank partners and teams that you must compete for attention [with] to solve your customer’s issue, and customers that may be slow to respond to your contact. Both require tactful persistence to succeed.”

Advantages and Disadvantages of Commercial Banking

Commercial banking is a career path with great entry-level opportunities, reasonable work hours, and good benefits.

“[You get to] truly be part of the economy, with direct understanding of credit markets and interest rates, and you get connected with business leaders in your city,” Shirley says. 

While you can positively impact your clients and the economy, this career path may also require stressful and high-pressure client relationships and work environments. 

“Banks tend to be complex, siloed institutions,” says Shirley. “It can take a while to develop an external network.”

To learn more of the pros and cons of commercial banking careers, check out Is Commercial Banking a Good Career Path?.

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